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Tuesday, September 15, 2015

Mergers and Acquisitions in Manufacturing Automation – H1 2015 Update


In July of 2014 Mirus initiated its coverage of Mergers and Acquisitions in the Manufacturing Automation industry. As it ended up 2014 was strong year for M&A in Manufacturing Automation, and Software in general.  For 2015 Mirus continues to cover the space with the release of it’s new report Mergers and Acquisitions in Manufacturing Automation – H1 2015 Update.

Overall the first half of 2015 Mergers and Acquisitions in Manufacturing Automation has continued at roughly the same pace as 2014 overall (actually up from H2, 2014), but off a bit from recent H1 numbers.  For tracked companies, Mirus identified 27 acquisitions in H1, 2015 as compared to 36 in H1, 2013 and 36 in H1, 2014.  Mirus attributes this overall adjustment in the pace of acquisitions to 3 things:

  • An overall scarcity of quality acquisition candidates,
  • A need for buyers to digest recent acquisitions, and
  • A growing valuation gap between buyer and sellers

In the first half of 2015, PLM and System Integrators were the most acquisitive of the sectors with a dozen acquisitions each.  This is a bit misleading however as over half (7) System Integration acquisitions were done by a single company, Accenture.

Manufacturing Automation Public Company Deal Volume

2013 – H1 2015

H1 2015 M&A in Mfg Automation

Also note that as discussed in our 2014 summary, SCM companies continue to concentrate on growing their business organically and made only two acquisitions in the first half.  Conversely, ERP companies also made only two acquisitions.  Noting their low revenue growth rate (internally or through acquisition), this appears to be an industry in transition.

Top acquiring companies have also shifted significantly.  Traditional large buyers; Autodesk, Dassault, Descartes and Oracle slowed their pace of acquisition noticeably.  The single largest standout buyer being Accenture, who completed as many acquisitions in H1, 2015 as they did in all of 2014 with 7 acquisitions in first six months of 2015, bringing their 30 month total to 20 acquisitions. While continuing to broaden their traditional strategic consulting and systems integration base, Accenture has also led the way in system integrators acquiring software technology that can be used to augment services adding two (T’quila and Gaspo) more software companies to their portfolio. Also of note was ESI Group ESI did the second most acquisitions of any company in the half; a rare event for them leading us to wonder if there is a new strategy afoot.  Combine that with two, what we perceive as, IoT acquisitions (Piviz and Cinitec) and ESI becomes a player to watch over the next year or so.

While volume has remained strong, we have seen some changes in areas of emphasis.  In reviewing this data, combined with our recent experience around the industry consulting and selling to a number of these organizations, we have come across what we believe to be a number of recent trends in the industry:

  • Retail finally gets the attention it deserves. No less than 5 acquisitions in this area by four different manufacturing automation companies in H1, 2015 signifies to us that retail automation is heating up (not to mention previous work by Dassault systems and other early visionaries in this space).
  • Business Intelligence is hot, hot, hot. Pick your market and there is probably a business intelligence application for it; from retail to manufacturing to real estate and others.  While there were not many business intelligence acquisitions made by manufacturing automation companies this half, we are seeing a large number of business intelligence companies getting funded and maturing rapidly in our day to day business because of the tremendous value they are bringing to customers
  • Internet of Things momentum continues to grow. IoT first hit our radar when PTC made huge investments ($300M over two years) in “The Internet of Things.”  Now it seems like the Internet of Things is everywhere.  Note the ESI acquisitions mentioned above.  Intersect BI with IOT and you have yet an even more interesting market to watch.
  • Hard core technology companies stick to their knitting. Once a geek always a geek and there is nothing wrong with that.  Just see acquisitions by Mentor, Dassault Systems, MSC, Ansys, and Synopsis and you have 8 of 11 total PLM acquisitions going toward analysis and simulation tools.

In Summary: Like the stock market, M&A in Manufacturing Automation for H1, 2015 continued at 2014’s pace; not up, not down just continuing to keep churning away.  Cash is plentiful, but it appears that companies are becoming more selective in their acquisitions, buying specific solutions in their existing domains (analysis), or filling out a very strategic direction (IoT or retail), as opposed to just placing random bets or adding capacity.

While lackluster performance in Europe and China are serious concerns for the economy as a whole, Mirus continues to believe 2015 totals should be on par with 2014 in terms of transaction volume in the Manufacturing Automation space.  After that however, all bets are off until we get a better feel for the impact of the oil glut, the Greek debt situation, the Chinese devaluation of the Yuan, and the pending US Fed action on interest rates.  Yes, the American economy is strong right now, but it is not insulated from international events and economic nervousness can quickly translate into increasing stock market volatility and stalled M&A volume.

From the sell side, we have never been busier.  Increasing scarcity of quality targets combined with economic uncertainty makes this an ideal time for owners to consider this time as ripe for exit.   If you believe your company is ready for market or if you would like an independent opinion on your readiness and market timing, it may be worth a discussion on how you can take advantage of the current trends in M&A for PLM.    You may download a complete copy of this report at Mergers and Acquisitions in Manufacturing Automation – H1 2015 Update.

 

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